REPORT DIGEST

GENERAL ASSEMBLY RETIREMENT SYSTEM

COMPLIANCE EXAMINATION

For the Year Ended:

June 30, 2005

Summary of Findings:

Total findings this report 1

Total findings last report 0

Repeated findings 0

Release Date:

May 2, 2006

State of Illinois

Office of the Auditor General

WILLIAM G. HOLLAND

AUDITOR GENERAL

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SYNOPSIS

¨ The management for the General Assembly Retirement System (GARS) and the Judges’ Retirement System (JRS) have not performed any documented review or evaluation of the allocation of joint administrative expenses of the two systems for several years.

{Financial Information and Activity Measures are summarized on the reverse page.}

GENERAL ASSEMBLY RETIREMENT SYSTEM OF ILLINOIS

INFORMATION FROM FINANCIAL AUDIT AND COMPLIANCE EXAMINATION

YEAR ENDED JUNE 30, 2005

OPERATING STATEMENT ANALYSIS	FY 2005	FY 2004
REVENUES: Contributions – Participants............................... Contributions – Appropriations & other............ Total Contributions..................................... Net investment income..................................... Net appreciation in fair value of investments...... Interest earned on cash balances...................... Total Revenue........................................... EXPENSES: Benefits - Retirement annuities....................... Benefits - Survivors' annuities........................... Total Benefits.......................................... Refunds.......................................................... Administration................................................. Total Expenses.......................................... Revenues over expenses..................................	$ 1,451,282 4,675,000 $ 6,126,282 1,816,517 5,768,602 57,342 $13,768,743 $10,953,940 2,409,402 $13,363,342 23,200 317,161 $13,703,703 $ 65,040	$ 1,596,695 32,951,754 $34,548,449 1,327,918 10,499,610 24,181 $46,400,158 $10,299,820 2,166,151 $12,465,971 97,835 304,652 $12,868,458 $33,531,700
ANALYSIS OF PLAN INVESTMENTS	FY 2005	FY 2004
Balance at beginning of year, at fair value............................... Net cash transferred to (from) investments.............................. Net investments (1)......................................................... Investment income – interest, dividends and other.................... Investment expenses.............................................................. Net Investment income (2).............................................. Net realized gain on sale of investments................................... Net unrealized gain on investments ......................................... Net appreciation in fair value of investments (3)................ Total net investment gain (4), (2) + (3).............................. Balance at end of year, at fair value (1) + (4)...................	$81,287,682 (8,100,000) $73,187,682 2,000,148 (183,631) $ 1,816,517 1,953,669 3,814,933 $ 5,768,602 $ 7,585,119 $80,772,801	$47,386,171 22,073,983 $69,460,154 1,468,459 (140,541) $ 1,327,918 4,795,760 5,703,850 $10,499,610 $11,827,528 $81,287,682
Contributions Available to Invest (iNVESTMENTS USED FOR Benefits and Expenses)	FY 2005	FY 2004
CONTRIBUTIONS: Participants......................................... Appropriations & other .................... Total Contributions (5)..................... DEDUCTIONS: Benefits............................................... Refunds................................................ Administration....................................... Total Deductions (6)........................... Contributions Available to Invest (Investments used to Pay Benefits and Expenses) (5)-(6)..........................................	$ 1,451,282 4,675,000 $ 6,126,282 $13,363,342 23,200 317,161 $13,703,703 $(7,577,421)	$ 1,596,695 32,951,754 $34,548,449 $12,465,971 97,835 304,652 $12,868,458 $21,679,991
SUPPLEMENTARY INFORMATION (unaudited)	FY 2005	FY 2004
Retirees and beneficiaries currently receiving benefits.............. Total members ...................................................................... Total active members............................................................. Total return on investments.....................................................	397 275 182 10.1%	397 280 181 16.4%
EXECUTIVE SECRETARY
During Audit Period: Robert V. Knox Currently: Robert V. Knox

Joint administrative expenses were allocated 40% to GARS and 60% to JRS

Recalculation of administrative expense allocation using 5 year historical information would be 27% to GARS and 73% to JRS

Funding legislation was changed to reduce the required employer (State) contributions for fiscal years 2006 and 2007

INTRODUCTION

This digest covers our compliance examination of the General Assembly Retirement System (System) for the year ended June 30, 2005. A financial audit covering the year ending June 30, 2005 was issued separately.

It should be noted that, pursuant to the Illinois Pension Code, investments of the System are managed by the Illinois State Board of Investment.

FINDING, CONCLUSION, AND

RECOMMENDATION

Allocation of Joint Administrative Expenses

During our testing of joint administrative expenses, we noted the board of trustees for the General Assembly Retirement System (GARS) and the Judges’ Retirement System (JRS) approved an allocation of joint administrative expenses of 40% for GARS and 60% for JRS. System management indicated the joint administrative expense allocation methodology was based on the number of members and annuitants of each system. The allocation has not been reviewed by management for several years to determine if it continues to be a valid allocation base.

We recomputed the joint administrative cost allocation for the two systems using the actual number of members and annuitants for each system over the five years ended June 30, 2005. Based on our recalculation the allocation of joint administrative expenses would be 27% allocable to GARS and 73% allocable to JRS. Using our recalculation, GARS would have reduced their reimbursement of joint administrative expenses by $87,589 for fiscal year 2005, and JRS would have increased their reimbursement by the same amount.

System management stated the joint administrative expense allocation had not been reevaluated in recent years because the board of trustees for both GARS and JRS felt that the cost sharing was appropriate and no major changes to the two systems have occurred.

We recommended GARS and JRS review and agree on an administrative expense allocation methodology and then recompute the joint administrative expense allocation on a periodic basis to ensure that each system is paying their equitable share of the joint administrative expenses. (Finding 1, page 8)

System management concurred with our recommendation and indicated the issue will be reviewed with the JRS and GARS boards of trustees.

Mr. Robert V. Knox, Executive Secretary provided the System’s response to the finding.

CHANGE IN FUNDING LEGISLATION

In June 2005, Public Act 94-0004 became law. This legislation further modified the funding plan of the System by reducing the amount of required employer contributions for fiscal year 2006 and 2007 that would have otherwise been required under the previous funding legislation. The required State contributions for fiscal years 2008 through 2010 will then be increased incrementally as a percentage of the participant payroll so that by fiscal year 2011 the State is contributing at the required level contribution rate to achieve the financing objective of a 90% funded status by the end of fiscal year 2045.

AUDITORS’ OPINION

We conducted a compliance attestation examination of the System for the year ended June 30, 2005 as required by the Illinois State Auditing Act. A financial audit covering the year ending June 30, 2005 was issued separately.

_____________________________________

WILLIAM G. HOLLAND, Auditor General

WGH:RPU:pp

SPECIAL ASSISTANT AUDITORS

McGladrey & Pullen, LLP were our special assistant auditors for this engagement.

REPORT DIGEST

YEAR ENDED JUNE 30, 2005

FY 2005

FY 2004

FY 2005

FY 2004

Contributions Available to Invest (iNVESTMENTS USED FOR Benefits and Expenses)

FY 2005

FY 2004

CHANGE IN FUNDING LEGISLATION